Tag: כרמי גת

About a month ago, I published an article about Purchasing an apartment for investment in Kiryat Gat. This article has become one of the most read articles on the site. Many commented on the article. There was also a comment stating, if you read Gindi's purchase agreement, you will understand that you made a mistake.

I don't usually respond to baseless comments. But, if I'm offered something as interesting and challenging as reviewing a nearly 60-page apartment purchase contract, who am I to refuse all this fun?

First of all, thank you very much to D. (name kept private) who consulted with me about a mortgage for Carmei Gat and agreed that I would photograph the purchase agreement.

Perhaps because I am not a lawyer, I was not very surprised that there was nothing in the contract that could turn an unviable investment into a viable one. To tell you the truth, my opinion against purchasing, at least for investment, in Karmey Gat has strengthened after reading the contract.

I'm happy to share with you some points from the purchase agreement. As mentioned, I'm not a lawyer, and I highly, highly recommend hiring one if you intend to buy an apartment from a contractor. The contractor's lawyer represents Only You are the contractor.

There are so many "whereas" clauses, and no mention of construction according to a building permit. An additional "whereas" clause must be demanded, stating that the construction will be in accordance with the valid building permit. Think it's self-evident? Think again. For example A tower in Petah Tikva whose occupancy is delayed due to a deviation from the building permit (too few parking spaces).

Here we are reaching the most creative stage. In an article about Buying an apartment from a contractor I mentioned that an apartment from a developer is an unknown product with an unknown price. Let’s start with the unknown product. Note that the apartment’s square footage may be reduced by 5% without compensation. The Sale Law allows for 2%, but we won’t get bogged down in minutiae like Israeli law. Another issue is the inclusion of common areas (stairwell, lobby, elevator) as part of the apartment’s area based on their proportional share. In other words, if someone buys a 100-square-meter apartment and thinks they’ll be mopping 100 square meters, I have good news for them. It is very likely that they will only have to mop 80 square meters. Of course, this means they will also only be able to use 80 square meters. To illustrate, a standard room measuring 3 by 4 meters is 12 square meters. In other words, 20 square meters is a significant area deducted from the apartment for those unwilling to sleep in the stairwell or lobby. The buyer undertakes to agree that things requiring repair in the apartment will be fixed after handover. This is important. What is missing? A large portion of readers rent apartments, I assume. Every lease agreement includes a clause for repair timelines. Heaven forbid, I have had more than one conversation regarding the obligation to fix an air conditioner within 3 business days and not five as I requested. Nevertheless. Gindi, on the other hand, does not commit to a repair timeline.

 Apartment renovations I’ve spared you the trouble of looking up the relevant section of the contract. In great detail, the contractor states that any changes will delay the apartment’s delivery by up to one month, and that this delay will incur costs for the contractor amounting to 0.51% of the apartment’s price (5,000 shekels for a one-million-shekel apartment).

It is very important to add to this section the determination that at the time of the change request, the contractor will specify in writing the delay in delivery so that the client can decide whether to request the change or not.

 Of course, Gindi is just an example. In this case, I actually received their contract. Personally, I've never bought an apartment from a contractor, but I've already read several contractor contracts. The points above are not unique to Gindi.

In February 2015.

Recently, there has been an extensive advertising campaign for the Karmey Gat neighborhood project in Kiryat Gat.

The nature of an advertising campaign created by good professionals is that it shapes public opinion and causes people to consider options they hadn't thought of before.

One of the recurring questions lately is the question regarding Purchasing an apartment in Kiryat Gat for investment.

For those who don't have time to read until the end, I'll start by saying I am unequivocally against it.. For everyone else, I recommend continuing to read to discover why I am against Gindi's "deal of the decade.".

 By the way, I didn't write the article against Carmei Gat, Kiryat Gat, or Gindi. It's simply an example that helps illustrate several decision-making failures made by people who want to invest but don't want to be investors. What I'm writing here can be extrapolated to similar projects in Harish, agricultural land anywhere, etc.

In this article, I have only addressed investors. Regarding purchasing an apartment for residential purposes, the considerations are entirely different, and I may write about that in a separate article.

After the long introduction, it's time to begin.

What is the purpose of the investment?

What is the goal of the investment? This sounds like a simple question, but a wrong answer here leads to wrong decisions. An investor generally looks for two things:

1. Current yield – Receive rent for the apartment he purchased.

2. Property value appreciation potential Personally, I usually ignore this part almost entirely when examining an investment, as price appreciation is speculation that may or may not materialize. If asset value appreciation is something I'm willing to risk, then the stock index has a better chance of increases. Moreover, I try to operate on the principle of profit on the investment at the time of purchase, not at some point in the distant future.

I have a whole article about Calculating the yield on an investment property. Regarding current return, let's say you invest a million shekels and can start receiving the money in a month or in three years. Which would you prefer? Most people wouldn't hesitate to decide that it's better to receive money in a month rather than in three years. Nevertheless, choosing an apartment for investment from a contractor will only yield income in a few years (in the best case) and not immediately, like Investing in a used apartment.

Can the apartment be applied to The Refrigerator Test, Would you be willing to buy a refrigerator for ₪5,000 with the following purchase conditions:

1. The final purchase amount is unknown and may vary.
2. You will receive the product in a few years, but with a possible deviation of a few months and after you pay the full price in advance.
3. The product may differ from what was promised And of unknown quality.

Let's examine section by section in detail:

The purchase amount is unknown Since it includes various attachments, payment to other parties such as an attorney of the contractor And payment for apartment renovations, including various mandatory renovations.

Delivery date is unclear., Check the contract. The contractor sets a date in a few years but also allows for extensions without penalty for months.

The product may differ from what was promised This is also stated in the contract. You can check and see that reducing the size of the apartment by 3% is permitted. The floor plan shown to buyers is "for illustrative purposes only" and is not binding.

There is no logical reason to buy an apartment from a contractor for investment and wait two or three years for a return. However, there are several factors and cognitive biases that push us in this direction:

1. A price that seems cheap to us "A new apartment for under a million shekels? I'll take two..." We're used to looking for apartments in our area and suddenly "discover" apartments that are much cheaper elsewhere. This seems like a good deal to us. But in real estate, unlike other products, the price isn't determined by production costs but mainly by supply and demand, which in Israel stems from the apartment's location. Therefore, if a three-room apartment in Givatayim costs two million shekels and in Kiryat Gat it costs less than a million, it doesn't mean anything about the advisability of the purchase.
2. More on a price that seems cheap and irrelevant data – When we look for a new mobile phone, we check comparisons of device features and prices. Many phone reviews include data such as the number of megapixels in the device's camera, with various tech writers going so far as to state that a certain phone is worse than another because it has "only" 10 megapixels in its camera. Photographers know that the number of pixels in a camera says very little about the quality of the image it produces. However, people have a limited ability to process information, which is why computers used to be measured by "clock speed" and cameras are measured by megapixels, etc. By the way, for me, most of the phone's active hours are spent on GPS, and there is almost no information in technical reviews about the GPS quality of mobile devices.
   How does all this relate to Ginidi and Kiryat Gat? Look at this table – https://gindi-gat.org/index/pp_image  Can a table be presented that is exactly like the "Megapixel" table, meaning a table with more or less meaningless data intended to convince us that purchasing in Kiryat Gat is a good deal? The table shows the price according to a parameter invented for marketing purposes, train travel time. That is, we are supposed to be convinced (and probably will be) that the only parameter related to apartment price is travel time. On the train In Tel Aviv terms of travel time/price in shekels, Gindi in Kiryat Gat is a great deal. Of course, this is a big absurdity and there are many other factors that influence the price. For example, what is the quality of education in Kiryat Gat? (I have no idea).
3. Past events – Everyone knows a friend who bought an apartment in a place no one expected and suddenly its price jumped. Of course, Gindi also knows such places, which is why their marketing approach resembles that of Modi'in. In practice, those who bought an apartment in Modi'in truly enjoyed a sharp increase in their apartment's value. Is this because they "knew how to identify an opportunity"? Not at all, The entire market has risen sharply in the last decade. This is true for Modi'in, Kiryat Ono, Holon, and Afula. By the same token, one could say that what was does not necessarily mean it will continue to be, and therefore, at least from an investment perspective, the likelihood of an apartment's value increasing more in Kiryat Gat than in Petah Tikva is not at all clear.

The three biases listed above can make us forget completely simple facts that every investor should remember:

1. An investment should yield a return.. As an investor in a new location without a kindergarten, grocery store, or traffic light yet, do you have the ability to estimate the rental income that will be received? Assuming that for someone buying an apartment for residence, the legend of a 35-minute train ride to Tel Aviv holds true (I will return to this later), would someone looking to rent also agree to similar conditions?
2. Restless mind – One of the reasons people prefer an apartment from a contractor over a used apartment is the thought that with a new apartment from a contractor, they get "peace of mind." Most people only buy an apartment from a contractor once in their lives and therefore don't have experience with the full meaning of this. They compare buying an apartment to buying a car, for example. With a car, the newer it is, the fewer malfunctions it has. With an apartment, the situation is completely different. According to Technion research 100% (100%!) Apartments are sold with construction defects. This means you only think you bought a finished apartment, but in reality, you'll be seeing a lot of the contractor's people. Unlike with a used apartment, where if you're not satisfied with a professional after a leak repair, you can replace them, with a contractor's apartment, you're always with the contractor's professionals. So yes, there's coverage for labor costs, but what about the lost workdays and the stress? After all, you initially preferred to pay more precisely because of the fear of problems.

Another article on Karmey Gat will be published soon, covering the marketing methods for this project. It will discuss who should consider buying there and who should stay away.